Using the Big Five personality traits from psychology, a study from Stanford and MIT reveals that CEO personality traits such as extraversion, openness to new experiences, or agreeableness will impact the corporate culture of the firm they lead in both positive and negative ways.
The impact of corporate culture on a firm’s success has been widely studied. A consensus exists among scholars and practitioners that CEOs, through their decisions and behaviors, play a vital role in the development of the culture of their firms.
A research study from Stanford and MIT argues that a CEO’s personality is the cornerstone of corporate culture. The researchers analyzed CEO earnings calls over five years to develop a profile of the personality traits of 460 individual CEOs in 309 firms. They then looked for links between these personality traits and the firms’ corporate cultures, identified through employee comments on the Glassdoor platform.
In addition to comparing CEO personality to corporate culture, the researchers looked at 128 succession events in these firms to determine whether corporate culture impacted the choice of new CEOs.
For their data, the researchers used the Big Five personality traits commonly used by psychologists to measure and define an individual’s personality: extraversion, agreeableness, conscientiousness, neuroticism, and openness to experience. They compared these personality traits to nine dimensions of culture: agility; collaboration; customer orientation; diversity; execution (i.e., operational excellence); innovation; integrity; performance (i.e., results-driven, competitive); and respect.
The study revealed definite links between the Big Five personality traits of CEOs and the corporate cultures of their firms.
Overall, the CEO personality traits of extraversion and agreeableness seemed to positively impact the culture of a firm, while the CEO personality traits of conscientiousness, openness, and neuroticism seemed to have a negative impact on corporate culture.
According to the study’s authors, the negative impact of conscientious CEOs on corporate culture could indicate that these CEOs can be so detail-oriented and focused on processes that they undermine positive cultural characteristics such as agility, execution, innovation, and performance.
The negative impact of openness is more puzzling. Why would imaginative and spontaneous CEOs inspire cultures with lower levels of diversity, ethics, and respect? Perhaps, according to the researchers, these creative CEOs are so focused on their own ideas that they ignore the ideas and feelings of others. Or perhaps the disconnect is tied to industry: creative CEOs might be valuable in certain creative industries while less productive in stable industries.
The researchers pursued this question and found that industry can influence which traits are positive and which are negative for the culture of a firm. In manufacturing and finance, for example, the conscientious CEO is more likely to be successful, while in technical industries, openness is prized.
The study also explored whether corporate culture influenced the choice of a successor. The results only showed modest support for the idea that culture is used to screen potential CEOs.
Finally, the study concluded that given the stability of CEO personalities, it is more likely that the personality shapes the culture and not the other way around.
This study confirms that the personalities of CEOs are linked to the type of corporate culture existing in the firms they lead. As a result, boards of directors may want to assess a candidate’s personality, in addition to their skills and experiences, to ensure that the personality aligns with the corporate culture of the firm.
Another important application of this study involves leader self-awareness and the ability to adjust their behavior. As noted above, CEO personality can have negative as well as positive impacts on a company’s culture. Issues within a company as reflected in problems with a company’s culture might be traced to a certain CEO’s personality trait. Even more positive traits, such as extraversion and agreeableness, can impact the culture negatively if pushed too far. Overly extroverted CEOs may be too assertive, and fail to listen to others, for example. While CEO agreeableness may encourage an agile and innovative culture, being too agreeable might lead CEOs to avoid necessary conflict. Coaching can address these serious issues.
Charles O’Reilly’s profile at Stanford Graduate School of Business
https://www.gsb.stanford.edu/faculty-research/faculty/charles-oreilly
Xubo Cao’s profile at Stanford Graduate School of Business
https://www.gsb.stanford.edu/programs/phd/academic-experience/students/xubo-cao
Donald Sull’s profile at MIT Sloan School of Management
https://mitsloan.mit.edu/faculty/directory/donald-sull
CEO Personality: The Cornerstone of Organizational Culture? Charles O’Reilly, Xubo Cao, Donald Sull. Group & Organization Management (May 2023).
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